Contrary to unfounded rumors, the Department of Labor (DOL) did not provide an exception in the new final rules for nonprofit organizations. In fact, the DOL clearly stated, “There are no changes to the rule that provides relief for nonprofits. Neither the FLSA nor DOL regulations provide an exemption from overtime requirements for nonprofit organizations.” Effective December 1, 2016, along with other businesses covered by the Fair Labor Standards Act (FLSA), nonprofits must adhere to the increase in the exempt salary threshold of $47,476 ($913/week) for white collar exempt employees. And while some nonprofits may not be covered under the FLSA, more likely than not many employees of nonprofits are entitled to FLSA protections.
So you may wonder how the FLSA applies to your nonprofit. Hospitals, schools and preschools, government agencies, and businesses providing medical or nursing care for residents are covered by the FLSA regardless of total annual sales, business, or nonprofit status. For everyone else, there are two types of coverage: enterprise coverage or individual coverage. Under enterprise coverage, the FLSA applies to your business if your annual sales or business is at least $500,000 per year. However, enterprise coverage for a nonprofit only applies to your activities that are performed for a business purpose; for example, if you run a gift shop. Enterprise coverage does not apply to your charitable activities that are not in substantial competition with other businesses. Additionally, income from contributions, donations (cash or non-cash) used for charitable activities, dues, and membership fees are not counted toward the $500,000 threshold. Under individual coverage, employees are generally entitled to FLSA protections if they, as individuals, are engaged in interstate commerce or in the production of goods for interstate commerce. For example, Jim regularly makes and/or receives interstate telephone calls, Mikki drives customers to another state, and Dean uses a credit card to purchase food for your nonprofit that provides free meals for homeless persons — all these employees are protected by the FLSA (and the final rule) on an individual basis, even in situations where the nonprofit is not covered as an enterprise.
Keep in mind, the new threshold does not have an impact on your hourly workers and the changes to the overtime rules have no impact on your white collar exempt employees with a regular workweek of less than 40 hours. Additionally, your salaried workers who do not meet the duties test (executive, administrative, or professional duties) are not eligible for the exemption and are not affected by the final rule. In fact, these employees should already be paid overtime for any hours worked in excess of 40 in a week. Additionally, workers at nonprofits — where the nonprofit fails to meet the enterprise coverage threshold — who don’t engage in interstate commerce are not impacted by the final rule.
The DOL understands the final rule will have a significant impact on everyone, including nonprofit organizations, especially since many nonprofits receive federal funding from the government or private grants of set amounts. In response to the final rule, the DOL released a guidance which many may find helpful with specific examples and suggestions for compliance.
Here are examples of changes your nonprofit can implement to comply with the final rule:
- Raise salaries for employees who meet the duties test, whose salaries are close to the new salary level, and who regularly work overtime, to at or above the salary level to maintain their exempt status.
- Pay employees a salary and pay overtime for hours in excess of 40 per week.
- Restructure workload distributions or adjust employee schedules.
- Adjust the amount of an employee’s earning to reallocate it between regular wages and overtime so the total amount paid remains largely the same. But do not reduce the employee’s wages below the highest applicable minimum wage. This includes federal, state, and local minimum wages.
Be mindful that although there are exceptions to who is covered by the FLSA, the law is designed to protect as many workers as possible. Therefore, most employees, even those working at nonprofits, are most likely covered by the FLSA and the new final rule.
Note: We’d like to touch on information about the overtime regulations and the FLSA “ministerial exception.” The “ministerial exception” is not in the FLSA itself but rather created through court interpretation and analysis of how the First Amendment applies to religious organizations, the definition of employee, and how religious organizations can be free from governmental intrusion, thereby not held answerable to areas of federal antidiscrimination and wage and hour law. For instance, in Hosanna-Tabor vs. EEOC, although the Supreme Court confirmed the existence of the ministerial exception, the court was unwilling to define a clear and concise test for the exception. Subsequently, this exception is very narrowly tailored and limited in application and each case is being determined on its own merits. Religious organizations should avoid the application of a blanket “ministerial exception” to the FLSA and seek legal counsel to avoid noncompliance.